Do you know who is responsible for administering your ERISA employee benefit plans, including who has the authority to resolve claims for benefits under each plan? Do your plan documents reflect your actual administrative practices?

A recent case decided at the Sixth Circuit Court of Appeals serves as a reminder for plan sponsors to review, understand and follow the terms of their employee benefit plans.

In Laake v. Benefits Committee, Western & Southern Financial Group Co. Flexible Benefits Plan et al., 68 F.4th 984 (6th Cir. 2023), the claimant brought an ERISA claim following a denial of disability benefits under her company’s long-term disability plan.

Ordinarily, where a plan grants discretionary authority to a plan administrator to determine whether a plan participant’s claim for benefits should be paid, a court would review the denial of a claim using either an “arbitrary and capricious” or “abuse-of-discretion” standard. These standards provide some leniency and deference to the plan administrator’s decision and make it more difficult for the claimant to prevail.

The claimant in Laake argued that the court should review the denial de novo, without giving deference to the plan administrator’s decision-making. The claimant’s position was that because the company’s benefits department decided the claim, even though the plan expressly delegated authority to resolve claims to the benefits committee, the terms of the plan had not been followed. Therefore, the plan administrator’s decision could be reviewed in full by the court. Deference to the plan administrator’s decision was not required. The Sixth Circuit agreed. The court ultimately affirmed the lower court’s decision finding that the claimant was entitled to the long-term disability benefits, imposing penalties against the plan sponsor, and awarding the claimant attorney’s fees and costs.

To avoid a de novo review of a denial of benefit claims or other administrative decisions with respect to its employee benefit plans, plan sponsors should confirm who has authority to perform tasks and to make decisions under their plans—and make sure to administer the plans accordingly, or amend them to reflect actual practice. As in Laake, plan sponsors that fail to pay attention to and follow the terms of their plans risk costly penalties and fees.